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Distributional effects of Europe’s climate policies

Distributional effects of Europe’s climate policies


How will the EU’s decarbonization and electrification policies affect different consumers and sectors of society in the 2020-2050 period? How will those effects vary across different regions and societal groups? And how can estimating the impacts on different sectors enable the design of appropriate policies and measures to mitigate negative effects?

These are some of the questions addressed in a new research on the distributional effects of key types of climate policies needed to meet EU climate goals undertaken by Eurelectric, with the technical collaboration of Guidehouse and Cambridge Econometrics and with the Enel Foundation as Knowledge Partner. 

Depending on their design, policies distribute costs and benefits differently across society. The magnitude of their impact on people’s income and expenditure can be very diverse. It is particularly important to avoid aggravating the gap between the richest and poorest in society, especially when it comes to climate policies, which affect a myriad of economic actors.

The research will start by singling out the distributional effects of a number of climate policies. This analysis will use macroeconomic modelling to explore the pattern of inequality in EU28, measured as variations from the baseline scenario in real income and in the Gini index, the most commonly used statistical measure of income inequality.

The second step of the study will look at how the distributional impacts can be mitigated through specific measures. In particular, by means of a case study analysis, the research will identify potential approaches to balance the impact of decarbonization policies on the income and expenditure of different parts of society.

This innovative analysis will also develop a combined policy package by coupling modelling results obtained in the first phase with lessons learnt from case studies in order to compile complementary policy approaches. Finally, it will assess the effect of revised policy approaches re-running the model by adding complementary policies and policy mix as further inputs.

The policy recommendations deriving from this research will help inform policy makers on how to reconcile potentially conflicting economic, environmental and societal policy objectives and refine interventions with key stakeholders, who will be involved during all the phases of the study.